Press Release

Email Alerts Email page Print view PDF view Social Media Sharing

Travelers Reports Second Quarter Net Income of $683 Million, or $1.95 per Diluted Share, Including Catastrophe Losses of $284 Million, or $0.82 per Diluted Share

Company Release - 7/22/2014 6:57 AM ET

Second Quarter Return on Equity and Operating Return on Equity of 10.7% and 11.4%, Respectively

Year-to-Date Return on Equity and Operating Return on Equity of 13.7% and 14.6%, Respectively

  • Operating income of $673 million or $1.93 per diluted share.
  • Net and operating income lower due to higher catastrophe losses while prior year quarter benefited $122 million after-tax from favorable tax and legal settlements. In addition, net income in the prior year quarter benefited $87 million after-tax from net realized investment gains related to a short position in U.S. Treasury futures contracts.
  • Quarter benefited from a strong underlying combined ratio and solid investment performance.
  • Written rate gains approximated expected loss cost trends in Business Insurance and exceeded expected loss cost trends in Financial, Professional & International Insurance and Personal Insurance.
  • Record quarterly net written premiums of $6.2 billion, up 6% from prior year quarter, primarily due to the acquisition of Dominion of Canada in November 2013.
  • Total capital returned to shareholders of $1.066 billion in the quarter, including $876 million in share repurchases. Year-to-date total capital returned to shareholders of $1.948 billion.
  • Increases in book value per share of 7% to $75.32 and adjusted book value per share of 4% to $69.38 from year-end 2013.

NEW YORK--(BUSINESS WIRE)-- The Travelers Companies, Inc. today reported net income of $683 million, or $1.95 per diluted share, for the quarter ended June 30, 2014, compared to net income of $925 million, or $2.41 per diluted share, in the prior year quarter. Operating income in the current quarter was $673 million, or $1.93 per diluted share, compared to $816 million, or $2.13 per diluted share, in the prior year quarter.

             

Consolidated Highlights

 

($ in millions, except for per share amounts, and after-tax, except for premiums & revenues)

Three Months Ended June 30, Six Months Ended June 30,

 

  2014         2013       Change   2014       2013     Change
 
Net written premiums $

6,162

$ 5,824 6 % $

12,035

$ 11,421 5 %
 
Total revenues $ 6,785 $ 6,674 2 $ 13,493 $ 13,002 4
 
Operating income $ 673 $ 816 (18 ) $ 1,725 $ 1,703 1

 

per diluted share $ 1.93 $ 2.13 (9 ) $ 4.89 $ 4.44 10
 
Net income $ 683 $ 925

(26

)

$ 1,735 $ 1,821 (5 )
 
per diluted share $ 1.95 $ 2.41 (19 ) $ 4.91 $ 4.75 3
 
Diluted weighted average 346.7 379.9 (9 ) 350.5 380.8 (8 )
shares outstanding

 

 

 
Combined ratio 95.1 % 94.3 % 0.8 pts 90.5 % 91.4 % (0.9 ) pts
 

Underlying combined ratio

90.9 % 91.7 % (0.8 ) pts 89.6 % 91.3 % (1.7 ) pts
 
Operating return on equity 11.4 % 14.2 % (2.8 ) pts 14.6 % 15.0 % (0.4 ) pts
 
Return on equity 10.7 % 14.6 % (3.9 ) pts 13.7 % 14.4 % (0.7 ) pts
 
 
Change from

June 30,

December 31, June 30, December 31,

June
30,

  2014     2013     2013     2013     2013  
 
Book value per share $ 75.32 $ 70.15 $ 66.65 7 % 13 %
 
Adjusted book value per share 69.38 66.41 62.12 4 12
 
See Glossary of Financial Measures for definitions and the statistical supplement for additional financial data.
 

“Our second quarter operating income of $673 million and operating return on equity of 11.4% were strong, particularly given the relatively high level of catastrophe losses we experienced this quarter,” commented Jay Fishman, Chairman and Chief Executive Officer. “The comparison of these results to last year’s second quarter was meaningfully impacted by the significant increase in catastrophe losses in the current quarter as well as the inclusion of significant favorable tax and legal settlements in the prior year quarter.We are very pleased with our underlying combined ratio of 90.9%, which improved from 91.7% in the prior year quarter. Net investment income was comparable to the prior year quarter, notwithstanding the impact of the low interest rate environment, as we continued to generate strong returns from our non-fixed income portfolio. In addition, our strong earnings in recent quarters enabled us to return over $1 billion of capital to shareholders in the current quarter, including $876 million of share repurchases.

“Our results year-to-date were very strong and demonstrated our continued success in actively managing our businesses to produce superior returns on capital over time. In Business Insurance, the cumulative effect of the price increases we have achieved over the last several years, combined with our highly analytic approach to risk selection, has resulted in a product portfolio that is achieving meaningfully improved and attractive returns. That said, we are not declaring mission accomplished. There remains opportunity to further improve the product portfolio by continuing to take appropriate action on those accounts or classes of business that still do not meet our return thresholds and by achieving additional rate increases for those accounts that continue to experience unusual weather volatility. In Personal Insurance, we still have more work to do to improve our returns, but we have made considerable progress in both Auto and Homeowners. The market response of Quantum 2.0, our new auto product, is particularly encouraging. Finally, Financial, Professional & International Insurance posted record operating income.

“In summary, we will continue to execute on our long-held financial strategy of building and sustaining meaningful competitive advantages, delivering superior profitability and returns, and returning excess capital to shareholders. As a consequence, we remain well positioned to continue to deliver compelling shareholder value over time.”

                       

Consolidated Results

                                                         
($ in millions and pre-tax, unless noted otherwise)
Three Months Ended June 30,   Six Months Ended June 30,
  2014     2013   Change     2014     2013   Change
 
Underwriting gains: $ 257 $ 281 $ (24 ) $ 1,048 $ 883 $ 165

Underwriting gains includes:

Net favorable prior year reserve development 183 192 (9 ) 477 423 54
Catastrophes, net of reinsurance (436 ) (340 ) (96 ) (585 ) (439 ) (146 )
 
Net investment income 695 687 8 1,431 1,357 74
 
Other, including interest expense (67 ) 42 (109 ) (125 ) (20 ) (105 )
             
Operating income before income taxes 885 1,010 (125 ) 2,354 2,220 134
Income tax expense   212     194  

18

    629     517     112  
Operating income 673 816 (143 ) 1,725 1,703 22
Net realized investment gains after income taxes   10     109     (99 )   10     118     (108 )
Net Income $ 683   $ 925   $ (242 ) $ 1,735   $ 1,821   $ (86 )
                                                         
 
Combined ratio 95.1 % 94.3 % 0.8 pts 90.5 % 91.4 % (0.9 ) pts
 

Impact on combined ratio

Net favorable prior year reserve development (3.1 ) pts (3.5 ) pts 0.4 pts (4.1 ) pts (3.8 ) pts (0.3 ) pts
Catastrophes, net of reinsurance 7.3 pts 6.1 pts 1.2 pts 5.0 pts 3.9 pts 1.1 pts
 
Underlying combined ratio 90.9 % 91.7 % (0.8 ) pts 89.6 % 91.3 % (1.7 ) pts
                                                         
 

Net written premiums

Business Insurance $

3,101

$ 3,068 1 % $

6,405

$ 6,328 1 %
Financial, Professional & International Insurance 1,168 849 38 2,118 1,496 42
Personal Insurance   1,893     1,907   (1 )   3,512     3,597   (2 )
Total         $

6,162

      $ 5,824         6   %       $

12,035

      $ 11,421         5   %
 

Second Quarter 2014 Results

(All comparisons vs. second quarter 2013, unless noted otherwise)

Net income of $683 million after-tax decreased $242 million or 26% due to a reduction in both operating income and net realized investment gains. Operating income of $673 million after-tax decreased $143 million or 18% primarily reflecting a $122 million after-tax benefit in the prior year quarter from favorable tax and legal settlements, as well as higher catastrophe losses in the current quarter, partially offset by higher underlying underwriting gains (which exclude prior year reserve development and catastrophe losses).

Underwriting results

  • The combined ratio increased 0.8 points to 95.1% due to higher catastrophe losses (1.2 points) and slightly lower net favorable prior year reserve development (0.4 points), partially offset by higher underlying underwriting margins (0.8 points).
  • Net favorable prior year reserve development occurred in all segments. Catastrophe losses primarily resulted from wind and hail storms in several regions of the United States.
  • The underlying combined ratio improvement of 0.8 points to 90.9% primarily resulted from a lower expense ratio. The underlying loss ratio improved slightly, as the benefit of earned rate increases exceeding loss cost trends was mostly offset by higher non-catastrophe weather-related losses.

Net investment income of $553 million after-tax ($695 million pre-tax) benefited from strong private equity returns, partially offset by lower reinvestment rates in the fixed income portfolio.

Net realized investment gains were $10 million after-tax ($16 million pre-tax) compared to $109 million after-tax ($167 million pre-tax) in the prior year quarter. The prior year quarter included an $87 million after-tax ($134 million pre-tax) realized gain related to a short position in U.S. Treasury futures contracts.

Record quarterly net written premiums of $6.162 billion increased 6% primarily due to the inclusion of Dominion within Financial, Professional & International Insurance, as well as slightly higher net written premiums in Business Insurance. These increases were partially offset by slightly lower net written premiums in Personal Insurance.

Year-to-Date 2014 Results

(All comparisons vs. year-to-date 2013, unless noted otherwise)

Net income of $1.735 billion after-tax decreased $86 million or 5% due to a reduction in net realized investment gains, partially offset by higher operating income. Operating income of $1.725 billion after-tax increased $22 million or 1% primarily reflecting higher underlying underwriting gains, higher net favorable prior year reserve development and higher net investment income. These improvements were partially offset by higher catastrophe losses. The current period included a $49 million after-tax benefit in the first quarter resulting from a reduction in the estimated liability for state assessments to be paid by the company related to workers’ compensation premiums. The prior year period included a $122 million after-tax benefit from favorable tax and legal settlements.

Underwriting results

  • The combined ratio improved 0.9 points to 90.5% due to higher underlying underwriting margins (1.7 points) and higher net favorable prior year reserve development (0.3 points), partially offset by higher catastrophe losses (1.1 points).
  • Net favorable prior year reserve development occurred in all segments. Catastrophe losses included the second quarter 2014 events discussed above, as well as winter storms in the United States in the first quarter 2014.
  • The underlying combined ratio improvement of 1.7 points to 89.6% primarily resulted from the same factors as discussed above for the second quarter.

Net investment income of $1.135 billion after-tax ($1.431 billion pre-tax) increased primarily due to the same factors discussed above for the second quarter, as well as higher real estate partnership returns.

Net written premiums of $12.035 billion increased 5% due to the same factors discussed above for the second quarter.

Shareholders’ Equity

Shareholders’ equity of $25.532 billion increased 1% and 3%, respectively, from the end of first quarter 2014 and year-end 2013. Included in shareholders’ equity were after-tax net unrealized investment gains of $2.013 billion, compared to $1.674 billion at the end of the first quarter 2014 and $1.322 billion at the end of the prior year.

The company repurchased 9.5 million shares during the second quarter and 18.0 million shares year-to-date at a total cost of $876 million and $1.581 billion, respectively. The company has $3.234 billion of remaining capacity under its existing share repurchase authorization. At the end of second quarter 2014, statutory surplus was $21.036 billion and the ratio of debt-to-capital (excluding after-tax net unrealized investment gains) was 21.3%, well within the target range of 15% to 25%.

The Board of Directors declared a quarterly dividend of $0.55 per share. This dividend is payable on September 30, 2014, to shareholders of record as of the close of business on September 10, 2014.

                             

Business Insurance Segment Financial Results

                                                       
($ in millions and pre-tax, unless noted otherwise)
Three Months Ended June 30, Six Months Ended June 30,
  2014     2013   Change   2014     2013   Change
 

Underwriting gains:

$ 22 $ 100 $ (78 ) $ 383 $ 398 $ (15 )

Underwriting gains includes:

Net favorable prior year reserve development 25 55 (30 ) 118 168 (50 )
Catastrophes, net of reinsurance (236 ) (148 ) (88 ) (316 ) (183 ) (133 )
 
Net investment income 496 502 (6 ) 1,026 989 37
 
Other 8 114 (106 ) 16 127 (111 )
           
Operating income before income taxes 526 716 (190 ) 1,425 1,514 (89 )
Income tax expense   117     137     (20 )   363     345     18  
Operating income $ 409   $ 579   $ (170 ) $ 1,062   $ 1,169   $ (107 )
                                                       
 
Combined ratio 99.0 % 96.2 % 2.8 pts 93.4 % 92.9 % 0.5 pts
 

Impact on combined ratio

Net favorable prior year reserve development (0.8 ) pts (1.8 ) pts 1.0 pts (1.9 ) pts (2.8 ) pts 0.9 pts
Catastrophes, net of reinsurance 7.7 pts 4.9 pts 2.8 pts 5.2 pts 3.1 pts 2.1 pts
 

Underlying combined ratio

92.1 % 93.1 % (1.0 ) pts 90.1 % 92.6 % (2.5 ) pts
 
 
Net written premiums by market
Select Accounts $ 705 $ 709 (1 ) % $ 1,423 $ 1,433 (1 ) %
Commercial Accounts 738 732 1 1,631 1,640 (1 )
National Accounts 243 242 - 543 519 5
Industry-Focused Underwriting 678 653 4 1,410 1,352 4
Target Risk Underwriting 513 500 3 967 948 2
Specialized Distribution   224     232   (3 )   431     436   (1 )
Total $ 3,101   $ 3,068   1 % $ 6,405   $ 6,328   1 %
                       

 

                   

Second Quarter 2014 Results

(All comparisons vs. second quarter 2013, unless noted otherwise)

Operating income of $409 million after-tax decreased $170 million or 29%, primarily reflecting a $102 million after-tax benefit in the prior year quarter from favorable tax and legal settlements, as well as higher catastrophe losses, lower net favorable prior year reserve development and lower net investment income, partially offset by higher underlying underwriting gains.

Underwriting results

  • The combined ratio increased 2.8 points to 99.0% due to higher catastrophes (2.8 points) and lower net favorable prior year reserve development (1.0 points), partially offset by higher underlying underwriting margins (1.0 points).
  • Net favorable prior year reserve development primarily resulted from better than expected loss experience related to the general liability product line, which was concentrated in excess coverages for accident years 2008 through 2012. This improvement was partially offset by a $57 million after-tax ($87 million pre-tax) increase to environmental reserves.
  • The underlying combined ratio improvement of 1.0 point to 92.1% primarily resulted from the benefit of earned rate increases exceeding loss cost trends, partially offset by higher non-catastrophe weather-related losses.

Net written premiums of $3.101 billion increased 1%, primarily driven by continued improvement in renewal rate. Net written premiums also benefited from positive exposure change at renewal. Retention rates remained strong, and new business volumes increased from the prior year quarter.

Year-to-Date 2014 Results

(All comparisons vs. year-to-date 2013, unless noted otherwise)

Operating income of $1.062 billion after-tax decreased $107 million or 9%, primarily reflecting the same factors as discussed above for the second quarter, except that net investment income was higher than the prior year period. The current period also included a $49 million after-tax benefit resulting from a reduction in the estimated liability for state assessments to be paid by the company related to workers’ compensation premiums in the first quarter.

Underwriting results

  • The combined ratio increased 0.5 points to 93.4% due to higher catastrophes (2.1 points) and lower net favorable prior year reserve development (0.9 points), partially offset by higher underlying underwriting margins (2.5 points).
  • Net favorable prior year reserve development primarily resulted from the same factors as discussed above for the second quarter as well as better than expected loss experience related to the property product line for accident years 2010 through 2013, partially offset by higher than expected loss experience for liability coverages in the commercial multi-peril product line for accident years 2010 through 2013.
  • The underlying combined ratio improvement of 2.5 points to 90.1% mostly resulted from a lower expense ratio that included the impact of the reduction in the estimated liability for assessments to be paid by the company related to workers’ compensation premiums. The underlying loss ratio improved slightly as the benefit of earned rate increases exceeding loss cost trends was mostly offset by higher non-catastrophe weather-related losses.

Net written premiums of $6.405 billion increased 1%, primarily driven by the same factors as discussed above for the second quarter except that new business volumes decreased slightly from the prior year period.

                             

Financial, Professional & International Insurance Segment Financial Results

                                                       
($ in millions and pre-tax, unless noted otherwise)
Three Months Ended June 30, Six Months Ended June 30,
  2014     2013   Change   2014     2013   Change
 

Underwriting gains:

$ 250 $ 100 $ 150 $ 412 $ 228 $ 184

Underwriting gains includes:

Net favorable prior year reserve development 146 72 74 215 130 85
Catastrophes, net of reinsurance (10 ) (46 ) 36 (14 ) (46 ) 32
 
Net investment income 105 91 14 211 183 28
 
Other 8 5 3 16 10 6
           
Operating income before income taxes 363 196 167 639 421 218
Income tax expense   109     42     67     190     104     86  
Operating income $ 254   $ 154   $ 100   $ 449   $ 317   $ 132  
                                                       
 
Combined ratio 76.6 % 86.3 % (9.7 ) pts 80.2 % 84.3 % (4.1 ) pts
 

Impact on combined ratio

Net favorable prior year reserve development (13.5 ) pts (9.7 ) pts (3.8 ) pts (10.1 ) pts (8.8 ) pts (1.3 ) pts
Catastrophes, net of reinsurance 0.9 pts 6.1 pts (5.2 ) pts 0.7 pts 3.1 pts (2.4 ) pts
 
Underlying combined ratio 89.2 % 89.9 % (0.7 ) pts 89.6 % 90.0 % (0.4 ) pts
                                                       
 
Net written premiums by market
Bond & Financial Products $ 540 $ 531 2 % $ 1,022 $ 926 10 %
International   628     318   97   1,096     570   92

Total

$ 1,168   $ 849   38 % $ 2,118   $ 1,496   42 %
                                               

Second Quarter 2014 Results

(All comparisons vs. second quarter 2013, unless noted otherwise)

Record quarterly operating income of $254 million after-tax increased $100 million or 65%, primarily reflecting improved underwriting results driven by higher net favorable prior year reserve development, lower catastrophe losses and higher underlying underwriting gains, as well as higher net investment income.

Underwriting results

  • The combined ratio improved 9.7 points to 76.6% due to lower catastrophe losses (5.2 points), higher net favorable prior year reserve development (3.8 points) and higher underlying underwriting margins (0.7 points).
  • Net favorable prior year reserve development primarily resulted from better than expected loss experience in the surety line of business for accident years 2004 through 2010 within Bond & Financial Products, as well as better than expected loss experience in the company’s operations at Lloyd’s and Canada within International.
  • The underlying combined ratio improved 0.7 points to 89.2%. An improvement in the underlying loss ratio from lower reinsurance costs and the benefit of earned rate increases exceeding loss cost trends in Bond & Financial Products was more than offset by the impact of Dominion on the underlying loss ratio. This higher underlying loss ratio was more than offset by a reduction in the expense ratio.

Record quarterly Financial, Professional & International Insurance net written premiums of $1.168 billion increased 38% as a result of higher net written premiums in both Bond & Financial Products and International. International net written premiums of $628 million increased 97% due to the inclusion of Dominion. Bond & Financial Products net written premiums of $540 million increased 2%, primarily due to continued strong retention rates and renewal rate increases in the management liability business within Bond & Financial Products.

Year-to-Date 2014 Results

(All comparisons vs. year-to-date 2013, unless noted otherwise)

Operating income of $449 million after-tax increased $132 million or 42%, primarily reflecting the same factors as discussed above for the second quarter.

Underwriting results

  • The combined ratio improved 4.1 points to 80.2% due to lower catastrophe losses (2.4 points), higher net favorable prior year reserve development (1.3 points) and higher underlying underwriting margins (0.4 points).
  • Net favorable prior year reserve development primarily resulted from the same factors discussed above for the second quarter.
  • The underlying combined ratio improvement of 0.4 points to 89.6% primarily reflected the same factors as discussed above for the second quarter.

Financial, Professional & International Insurance net written premiums of $2.118 billion increased 42% as a result of higher net written premiums in both Bond & Financial Products and International. Net written premiums of $1.096 billion in International and $1.022 billion in Bond & Financial Products increased 92% and 10%, respectively, driven by the same factors as discussed above for the second quarter, as well as the elimination of a reinsurance program in Bond & Financial Products.

                         

Personal Insurance Segment Financial Results

                                                     
($ in millions and pre-tax, unless noted otherwise)
Three Months Ended June 30, Six Months Ended June 30,
  2014     2013   Change   2014     2013   Change
 
Underwriting gains (losses): $ (15 ) $ 81 $ (96 ) $ 253 $ 257 $ (4 )

Underwriting gains (losses) includes:

Net favorable prior year reserve development 12 65 (53 ) 144 125 19
Catastrophes, net of reinsurance (190 ) (146 ) (44 ) (255 ) (210 ) (45 )
 
Net investment income 94 94 - 194 185 9
 
Other 17 15 2 43 33 10
           
Operating income before income taxes 96 190 (94 ) 490 475 15
Income tax expense   21     48     (27 )   147     136     11  
Operating income $ 75   $ 142   $ (67 ) $ 343   $ 339   $ 4  
                                                     
 
Combined ratio 99.8 % 94.5 % 5.3 pts 91.7 % 91.9 % (0.2 ) pts
 

Impact on combined ratio

Net favorable prior year reserve development (0.7 ) pts (3.5 ) pts 2.8 pts (4.1 ) pts (3.4 ) pts (0.7 ) pts
Catastrophes, net of reinsurance 10.7 pts 8.0 pts 2.7 pts 7.2 pts 5.7 pts 1.5 pts
 
Underlying combined ratio 89.8 % 90.0 % (0.2 ) pts 88.6 % 89.6 % (1.0 ) pts
                                                     
 
Net written premiums
Agency Automobile1 $ 831 $ 834 - % $ 1,619 $ 1,665 (3 ) %
Agency Homeowners & Other1 1,016 1,033 (2 ) 1,804 1,853 (3 )
Direct to Consumer   46     40   15   89     79   13
Total $ 1,893   $ 1,907   (1 ) % $ 3,512   $ 3,597   (2 ) %
 

1 Represents business sold through agents, brokers and other intermediaries, and excludes direct to consumer.

 

Second Quarter 2014 Results

(All comparisons vs. second quarter 2013, unless noted otherwise)

Operating income of $75 million after-tax decreased $67 million or 47%, primarily reflecting lower net favorable prior year reserve development and higher catastrophe losses.

Underwriting results

  • The combined ratio increased 5.3 points to 99.8% primarily due to lower net favorable prior year reserve development (2.8 points) and higher catastrophe losses (2.7 points), slightly offset by higher underlying underwriting margins (0.2 points).
  • Net favorable prior year reserve development primarily resulted from better than expected loss experience in Homeowners & Other for accident year 2013 related to non-catastrophe weather related losses.
  • The underlying combined ratio improvement of 0.2 points to 89.8% primarily resulted from a decrease in the expense ratio and the benefit of earned rate increases exceeding loss cost trends in both Automobile and Homeowners & Other, mostly offset by higher non-catastrophe weather-related losses.

Personal Insurance net written premiums of $1.893 billion decreased 1%. Renewal premium change remained positive. Retention rates continued to be strong and generally consistent with recent quarters. New business was significantly higher than the prior year quarter due to the company’s new auto product, Quantum 2.0, which had been introduced in 31 states and the District of Columbia by the end of the second quarter.

Year-to-Date 2014 Results

(All comparisons vs. year-to-date 2013, unless noted otherwise)

Operating income of $343 million after-tax increased $4 million or 1%, primarily reflecting improved underwriting results driven by higher net favorable prior year reserve development and higher underlying underwriting gains, as well as higher net investment income. These improvements were mostly offset by higher catastrophe losses.

Underwriting results

  • The combined ratio improved slightly from 91.9% to 91.7%, primarily due to higher underlying underwriting margins (1.0 point) and higher net favorable prior year reserve development (0.7 points), largely offset by higher catastrophe losses (1.5 points).
  • Net favorable prior year reserve development primarily resulted from better than expected loss experience in Homeowners & Other for accident years 2011 through 2013.
  • The underlying combined ratio improvement of 1.0 point to 88.6% primarily resulted from the same factors as discussed above for the second quarter.

Personal Insurance net written premiums of $3.512 billion decreased 2%. Renewal premium change remained positive, retention rates continued to be strong and new business was significantly higher than the prior year period.

Financial Supplement and Conference Call

The information in this press release should be read in conjunction with a financial supplement that is available on our website at www.travelers.com. Travelers management will discuss the contents of this release and other relevant topics via webcast at 9 a.m. Eastern (8 a.m. Central) on Tuesday, July 22, 2014. Investors can access the call via webcast at http://investor.travelers.com or by dialing 1-800-728-2056 within the U.S. and 1-212-231-2901 outside the U.S. (use passcode 14788 for both the U.S. and international calls). Prior to the webcast, a slide presentation pertaining to the quarterly earnings will be available on the company's website.

Following the live event, an audio playback of the webcast and the slide presentation will be available at the same website. An audio playback can also be accessed by phone at 1-800-633-8284 within the U.S. and 1-402-977-9140 outside the U.S. (use reservation 21720985 for both the U.S. and international calls).

About Travelers

The Travelers Companies, Inc. (NYSE: TRV) is a leading provider of property casualty insurance for auto, home and business. The company’s diverse business lines offer its customers a wide range of coverage sold primarily through independent agents and brokers. A component of the Dow Jones Industrial Average, Travelers has more than 30,000 employees and operations in the United States and selected International markets. For more information, visit www.travelers.com.

From time to time, Travelers may use its website and/or social media outlets, such as Facebook and Twitter, as distribution channels of material company information. Financial and other important information regarding the company is routinely accessible through and posted on our website at http://investor.travelers.com, our Facebook page at https://www.facebook.com/travelers and our Twitter account (@TRV_Insurance) at https://twitter.com/TRV_Insurance. In addition, you may automatically receive email alerts and other information about Travelers when you enroll your email address by visiting the “Email Alert Service” section at http://investor.travelers.com.

For the periods presented in this earnings release, Travelers was organized into the following reportable business segments:

Business Insurance: The Business Insurance segment offers a broad array of property and casualty insurance and insurance-related services to its clients primarily in the United States. Business Insurance is organized into the following six groups, which collectively comprise Business Insurance Core operations: Select Accounts; Commercial Accounts; National Accounts; Industry-Focused Underwriting including Construction, Technology, Public Sector Services, Oil & Gas and Agribusiness; Target Risk Underwriting including National Property, Inland Marine, Ocean Marine, Excess Casualty, Boiler & Machinery and Global Partner Services; and Specialized Distribution including Northland and National Programs. Business Insurance also includes the Special Liability Group (which manages the company’s asbestos and environmental liabilities) and the assumed reinsurance and certain other runoff operations, which collectively are referred to as Business Insurance Other.

Financial, Professional & International Insurance: The Financial, Professional & International Insurance segment includes surety and financial liability coverages, which primarily use credit-based underwriting processes, as well as property and casualty products that are primarily marketed on a domestic basis in Canada, the United Kingdom and the Republic of Ireland, and on an international basis as a corporate member of Lloyd’s. The segment includes the Bond & Financial Products groups as well as the International group. The International group includes The Dominion of Canada General Insurance Company, which the company acquired in November 2013 and which writes personal lines and small commercial insurance business in Canada. In addition, the company owns 49.5% of the common stock of J. Malucelli Participações em Seguros e Resseguros S.A., its joint venture in Brazil.

Personal Insurance: The Personal Insurance segment writes a broad range of property and casualty insurance covering individuals’ personal risks. The primary products of automobile and homeowners insurance are complemented by a broad suite of related coverages.

On June 10, 2014, the company announced a realignment of its management team that gave rise to a realignment of two of its three business segments, effective July 1, 2014. The company’s International Insurance group, which had previously been included in the Financial, Professional & International Insurance segment, will be combined with the company’s previous Business Insurance segment to create a new Business & International Insurance segment. The Bond & Financial Products group, which was the remaining business in the Financial, Professional & International Insurance segment, will now comprise the new Bond & Financial Products segment. The Personal Insurance segment will not be impacted by these changes. The changes were designed to reflect the realignment of the company’s management team and the manner in which the company’s businesses are managed effective July 1, 2014, and represent an aggregation of products and services based on type of customer, how the business is marketed and the manner in which risks are underwritten. The newly aligned segments will be presented in the company’s financial statements beginning with the period ending September 30, 2014 and the prior periods presented will be restated to conform to the new presentation.

* * * * *

Forward-Looking Statement

This press release contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Words such as “may”, “will”, “should”, “likely”, “anticipates”, “expects”, “intends”, “plans”, “projects”, “believes”, “estimates” and similar expressions are used to identify these forward-looking statements. Specifically, statements about the company’s outlook, share repurchase plans, expected margin improvement, potential returns, future pension plan contributions and the potential impact of investment markets and other economic conditions on the company’s investment portfolio and underwriting results, among others, are forward looking, and the company may also make forward-looking statements about, among other things:

  • its results of operations and financial condition (including, among other things, premium volume, premium rates, net and operating income, investment income and performance, loss costs, return on equity, and expected current returns and combined ratios);
  • the sufficiency of the company’s asbestos and other reserves;
  • the impact of emerging claims issues as well as other insurance and non-insurance litigation;
  • the cost and availability of reinsurance coverage;
  • catastrophe losses;
  • the impact of investment, economic and underwriting market conditions; and
  • strategic initiatives, including initiatives, such as in Personal Insurance, to improve profitability and competitiveness.

The company cautions investors that such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond the company’s control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

Some of the factors that could cause actual results to differ include, but are not limited to, the following:

  • catastrophe losses could materially and adversely affect the company’s results of operations, its financial position and/or liquidity, and could adversely impact the company’s ratings, the company’s ability to raise capital and the availability and cost of reinsurance;
  • during or following a period of financial market disruption or economic downturn, the company’s business could be materially and adversely affected;
  • if actual claims exceed the company’s claims and claim adjustment expense reserves, or if changes in the estimated level of claims and claim adjustment expense reserves are necessary, the company’s financial results could be materially and adversely affected;
  • the company’s investment portfolio may suffer reduced returns or material realized or unrealized losses;
  • the company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation;
  • the company is exposed to, and may face adverse developments involving, mass tort claims such as those relating to exposure to potentially harmful products or substances;
  • the effects of emerging claim and coverage issues on the company’s business are uncertain;
  • the intense competition that the company faces could harm its ability to maintain or increase its business volumes and profitability;
  • the company may not be able to collect all amounts due to it from reinsurers and reinsurance coverage may not be available to the company in the future at commercially reasonable rates or at all;
  • the company is exposed to credit risk in certain of its business and investment operations including reinsurance or structured settlements;
  • within the United States, the company’s businesses are heavily regulated by the states in which it conducts business, including licensing and supervision, and changes in regulation may reduce the company’s profitability and limit its growth;
  • changes in state or federal regulation or enforcement practices could impose significant burdens on the company and otherwise adversely impact the company’s results;
  • a downgrade in the company’s claims-paying and financial strength ratings could adversely impact the company’s business volumes, adversely impact the company’s ability to access the capital markets and increase the company’s borrowing costs;
  • the inability of the company’s insurance subsidiaries to pay dividends to the company’s holding company in sufficient amounts would harm the company’s ability to meet its obligations, pay future shareholder dividends or make future share repurchases;
  • disruptions to the company’s relationships with its independent agents and brokers could adversely affect the company;
  • the company’s efforts to develop new products, such as Quantum 2.0, or expand in targeted markets may not be successful and may create enhanced risks;
  • the company may be adversely affected if its pricing and capital models provide materially different indications than actual results;
  • the company’s business success and profitability depend, in part, on effective information technology systems and on continuing to develop and implement improvements in technology;
  • if the company experiences difficulties with technology, data security and/or outsourcing relationships, the company’s ability to conduct its business could be negatively impacted;
  • the company is subject to a number of risks associated with its business outside the United States;
  • new regulations outside of the United States, including in the European Union, could adversely impact the company’s results of operations and limit its growth;
  • loss of or significant restriction on the use of particular types of underwriting criteria, such as credit scoring, in the pricing and underwriting of the company’s products could reduce the company’s future profitability;
  • acquisitions and integration of acquired businesses may result in operating difficulties and other unintended consequences;
  • the company could be adversely affected if its controls to ensure compliance with guidelines, policies and legal and regulatory standards are not effective;
  • the company’s businesses may be adversely affected if it is unable to hire and retain qualified employees;
  • intellectual property is important to the company’s business, and the company may be unable to protect and enforce its own intellectual property or the company may be subject to claims for infringing on the intellectual property of others;
  • changes to existing accounting standards may adversely impact the company’s reported results;
  • changes in U.S. tax laws or in the tax laws of other jurisdictions in which the company operates could adversely impact the company; and
  • the company’s repurchase plans depend on a variety of factors, including the company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the company’s desired ratings from independent rating agencies, funding of the company’s qualified pension plan, capital requirements of the company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions and other factors.

Our forward-looking statements speak only as of the date of this press release or as of the date they are made, and we undertake no obligation to update forward-looking statements. For a more detailed discussion of these factors, see the information under the captions "Risk Factors" and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent annual report on Form 10-K and our quarterly report on Form 10-Q filed with the Securities and Exchange Commission (SEC).

*****

GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF NON-GAAP MEASURES TO GAAP MEASURES

The following measures are used by the company’s management to evaluate financial performance against historical results and establish targets on a consolidated basis. In some cases, these measures are considered non-GAAP financial measures under applicable SEC rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. Reconciliations of non-GAAP measures to their most directly comparable GAAP measures also follow.

In the opinion of the company’s management, a discussion of these measures provides investors, financial analysts, rating agencies and other financial statement users with a better understanding of the significant factors that comprise the company’s periodic results of operations and how management evaluates the company’s financial performance. Internally, the company's management uses these measures to evaluate performance against historical results, to establish financial targets on a consolidated basis and for other reasons, which are discussed below.

Some of these measures exclude net realized investment gains (losses), net of tax, and/or net unrealized investment gains (losses), net of tax, which can be significantly impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends.

Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by the company’s management.

RECONCILIATION OF OPERATING INCOME AND CERTAIN OTHER NON-GAAP MEASURES TO NET INCOME

Operating income is net income excluding the after-tax impact of net realized investment gains (losses) and discontinued operations. Management uses operating income to analyze each segment’s performance and as a tool in making business decisions. Financial statement users also consider operating income when analyzing the results and trends of insurance companies. Operating earnings per share is operating income on a per common share basis.

Reconciliation of Operating Income less Preferred Dividends to Net Income

                         
        Three Months Ended     Six Months Ended
June 30, June 30,
($ in millions, pre-tax)       2014   2013     2014   2013
   
Operating income $ 885

 

$ 1,010 $ 2,354

 

$ 2,220
Net realized investment gains         16     167       17     177
Net income       $ 901   $ 1,177     $ 2,371   $ 2,397
 
                         
        Three Months Ended     Six Months Ended
June 30, June 30,
($ in millions, after-tax)       2014   2013     2014   2013
   
Operating income $ 673 $ 816 $ 1,725 $ 1,703
Net realized investment gains         10     109       10     118

Net income

      $ 683   $ 925     $ 1,735   $ 1,821
 
                                           
        Twelve Months Ended December 31,
($ in millions, after-tax)         2013   2012   2011   2010   2009   2008     2007   2006   2005
               
Operating income, less preferred dividends $ 3,567 $ 2,441 $ 1,389 $ 3,040 $ 3,597 $ 3,191 $ 4,496 $ 4,195 $ 2,020
Preferred dividends           -     -     1     3     3     4       4     5     6  
Operating income 3,567 2,441 1,390 3,043 3,600 3,195 4,500 4,200 2,026
Net realized investment gains (losses)           106     32     36     173     22     (271 )     101     8     35  
Income from continuing operations 3,673 2,473 1,426 3,216 3,622 2,924 4,601 4,208 2,061
Discontinued operations           -     -     -     -     -     -       -     -     (439 )
Net income         $ 3,673   $ 2,473   $ 1,426   $ 3,216   $ 3,622   $ 2,924     $ 4,601   $ 4,208   $ 1,622  
 

Reconciliation of Operating Earnings per Share to Net Income per Share on a Basic and Diluted Basis

                         
        Three Months Ended     Six Months Ended
June 30, June 30,
          2014   2013     2014   2013
   

Basic earnings per share

Operating income $ 1.95 $ 2.15 $ 4.94 $ 4.49
Net realized investment gains       0.03   0.29     0.03   0.31
Net income       $ 1.98   $ 2.44     $ 4.97   $ 4.80
 

Diluted earnings per share

Operating income $ 1.93 $ 2.13 $ 4.89 $ 4.44
Net realized investment gains       0.02   0.28     0.02   0.31
Net income       $ 1.95   $ 2.41     $ 4.91   $ 4.75
 

Reconciliation of Operating Income by Segment to Total Operating Income

                           
          Three Months Ended     Six Months Ended
June 30, June 30,
($ in millions, after-tax)         2014   2013     2014   2013
   
 
Business Insurance $ 409 $ 579 $ 1,062 $ 1,169
Financial, Professional & International Insurance 254 154 449 317
Personal Insurance           75       142         343       339  
Total segment operating income 738 875 1,854 1,825
Interest Expense and Other           (65 )     (59 )       (129 )     (122 )
Total operating income         $ 673     $ 816       $ 1,725     $ 1,703  
 

RECONCILIATION OF ADJUSTED SHAREHOLDERS’ EQUITY TO SHAREHOLDERS’ EQUITY AND OPERATING RETURN ON EQUITY TO RETURN ON EQUITY

Average shareholders’ equity is (a) the sum of total shareholders’ equity excluding preferred stock at the beginning and end of each of the quarters for the period presented divided by (b) the number of quarters in the period presented times two. Adjusted shareholders’ equity is shareholders’ equity excluding net unrealized investment gains (losses), net of tax, net realized investment gains (losses), net of tax, for the period presented, preferred stock and discontinued operations. Adjusted average shareholders’ equity is average shareholders’ equity excluding net unrealized investment gains (losses), net of tax, for all quarters included in the calculation and, for each quarterly period included in the calculation, that quarter’s net realized investment gains (losses), net of tax and discontinued operations.

Reconciliation of Adjusted Shareholders’ Equity to Shareholders’ Equity

                                               
            As of June 30,          
($ in millions)                 2014   2013
 
Adjusted shareholders' equity $ 23,509 $

23,080

Net unrealized investment gains, net of tax 2,013

1,692

Net realized investment gains, net of tax                   10     118  
Shareholders' equity                 $ 25,532   $ 24,890  
 
As of December 31,
($ in millions)         2013   2012   2011   2010   2009   2008     2007   2006   2005   2004
 
Adjusted shareholders' equity $ 23,368 $ 22,270 $ 21,570 $ 23,375 $ 25,458 $ 25,647 $ 25,783 $ 24,545 $ 22,227 $ 20,087
Net unrealized investment gains (losses), net of tax 1,322 3,103 2,871 1,859 1,856 (146 ) 620 453 327 866
Net realized investment gains (losses), net of tax 106 32 36 173 22 (271 ) 101 8 35 (28 )
Preferred stock - - - 68 79 89 112 129 153 188
Discontinued operations           -     -     -     -     -     -       -     -     (439 )     88  
Shareholders' equity         $ 24,796   $ 25,405   $ 24,477   $ 25,475   $ 27,415   $ 25,319     $ 26,616   $ 25,135   $ 22,303     $ 21,201  
 

Return on equity is the ratio of annualized net income less preferred dividends to average shareholders’ equity for the periods presented. Operating return on equity is the ratio of annualized operating income less preferred dividends to adjusted average shareholders’ equity for the periods presented. In the opinion of the company’s management, these are important indicators of how well management creates value for its shareholders through its operating activities and its capital management.

Calculation of Operating Return on Equity and Return on Equity

                           
          Three Months Ended     Six Months Ended
June 30, June 30,
($ in millions, after-tax)         2014   2013     2014   2013
   
Annualized operating income $ 2,693 $ 3,261 $ 3,450 $ 3,406
Adjusted average shareholders' equity           23,612       22,910         23,603       22,711  
Operating return on equity           11.4 %     14.2 %       14.6 %     15.0 %
 
Annualized net income $ 2,730 $ 3,697 $ 3,470 $ 3,641
Average shareholders' equity           25,460       25,243         25,276       25,372  
Return on equity           10.7 %     14.6 %       13.7 %     14.4 %
 

Average annual operating return on equity over a period is the ratio of:
a) the sum of operating income less preferred dividends for the periods presented to
b) the sum of: 1) the sum of the adjusted average shareholders’ equity for all full years in the period presented, and 2) for partial years in the period presented, the n